PANCHAKSHARI S PROFESSIONAL ACADEMY PVT LTD

Transcription

1 PANCHAKSHARI S PROFESSIONAL ACADEMY PVT LTD Specialised Notes for COSTING THEORY (Private Circulation Only) 100+ Short Notes of Costing in simplified manner ,

2 1) Reasons for the inefficiencies in material handling i) Inferior quality raw material, ii) Inefficient worker, iii) Defective machines, iv) Inaccurate specification of Raw Materia,l v) Faulty Material Processing. 2) Technique to avoid the excessive stock i) EOQ ii) Proper budget iii) ABC Analysis iv) Stock levels v) Control on slow / non moving items vi) Reduction of variety of RAW MATERIAL vii) Codification of material 3) Treatment of some special exp. Expenses Treatment i) Carriage inward added in cost of Material ii) Storage loss absorbed by good units iii) Abnormal Storage loss costing P & L debit. iv) Cash discount received reduced from raw material cost v) Insurance on RAW MATERIAL add in RAW MATERIAL as per AS 2 4) Distinguish between spoilage and defective Spoilage Defective (Damages) Loss of RAW MATERIAL in processing bad quality finished goods Reconditioning Not possible possible Can be sold as Scrap sub-standard F.G. Common Accounting treatment Normal loss absorb by good units. Abnormal loss Costing P & L Dr. Due to customer mistake added in s. price reduced form customer 5) LIFO Method- Condition when LIFO should be used i) heavy price rise ii) When FIFO method results in heavy tax iii) When current customer is ready to pass the higher price and lesser demand is expected in future. Advantages i) Stock is recorded at latest price ii) Avoid showing excessive income when prices are increasing. iii) Helps to avoid fluctuations in valuation of stock. Limitations i) Complex method. ii) It avoid the old prices in short run but ultimately it comes in long run iii) Not allowed by income tax authorities. 6) Replacement price V/S standard price Replacement price Standard price Today s purchasing price Predecided fixed price When useful? When price are fluctuating When price are fixed 1 st Floor, Gajanan Plaza, Opp. Kashiba Medical, Ashok Stambh, Nasik Page 2

3 Today s market prices Yes What to consider? Past date Scientific? Not so much 7) Short note on wastage i) Normal loss of RAW MATERIAL ii) Does not give any sale price iii) Generally known well in advance. iv) Absorb by good units. v) Abnormal wastage, debited to costing P & L. vi) Generally uncontrollable 8) ABC Analysis: i) The technique for codification of material ii) Materials is distributed in three parts. Care Proportion in qty proportion in cate. Proportion in cost Max lowest A highest Gen. Medium B medium Not so much highest C lowest Advantage i) Save management time, cost. ii) Avoids excessive stock iii) Spoilage iv) Helps to take care of important goods. 9) Proforma of Bill of Material : please refer the study module. 10) Bill of materiali) The document containing the fixed demand of Raw Material For particular dept ii) Avoids the magt. Time to find out the demand again and again iii) It is an authorization to specific dept. 11) Perpatual inventory continuous Stock taking: The system where stock stock checking is done after records are maintain on specific time span only daily basis Requirements Bin cards, stores ledger etc stock taking team Time Involved Max. min. Information available Daily after specific period only 12) Bill of material Material Reacquisition note Fixed demand of dept. for RAW MATERIAL Specific requirement of special goods Format (Contains) Standardize. Not standardize. Used Regularly for every demand Only when special Material Is required Authorization Given at once only Specially required 1 st Floor, Gajanan Plaza, Opp. Kashiba Medical, Ashok Stambh, Nasik Page 3

4 13) EOQ i) The quantity to be order at once to have minimum total cost i.e. purchasing + ordering + carrying cost ii) EOQ = 2AO C ii) It needs the information of annual consumption ordering cost, carrying cost as well as purchasing price. iv) Generally the organisation makes the purchases close to EOQ. Assumptions of EOQ i) A, O, C known are constant. ii) Usage qty is known and constant. iii) Purchasing price is known 14) Purchase order: Please refer the study module. 15) Purchase Requisition Material Requirement Note. 16) J.I.T. I) Japanese Technique. ii) Minimum RAW MATERIAL stock to be maintain. iii) Suppliers must supply the RAW MATERIAL in time. iv) Supplies making the delay liminated v) Minimum stock of F.G. is expected. vi) No excessive production is allowed vii) Saves storages cost, time and wastage. 17) Bin Cards Stores ledger The cost refer to quantity of RAW MATERIAL The document recording quantity and cost Maintain by Store keeper accountant Contains are recorded when Goods are received Invoice is received Contains Quantity Quantity and cost Part of perpetual system? Yes Yes 18) Slow / Non moving items. i) These are the materials which are rarely used. It is the result of excessive past purchases. ii) These are detected due to a) Slow movement b) Higher iii) For avoiding these goods a) use G.I.T. system b) prepare standardize bill of Material c) Keep continuous watch on stock of goods d) Discard the slow moving items. 19) Re-order level Re-order Qty Level at which the next order is given The qty. which is ordered at once. (EOQ) Formula = Max. usage X max. lead time = = Min. level + Avg. usage X Avg. lead time Usage Helps to decide the date for next order 2AO C helps to decide proper qty to be ordered to keep the min level 1 st Floor, Gajanan Plaza, Opp. Kashiba Medical, Ashok Stambh, Nasik Page 4

5 20) Short Note: Miximum level Minimum level Max qty to be maintain min qty to be maintain Formula ROL + ROQ (Min X Min) = ROL (Avg. X Avg.) Risk if not followed Wastage stoppage of production Points to be considered a) ROL b) ROQ a) ROL b) Avg. time c) Refund availability c) Avg. consumption d) Storage space etc. d) any abnormal situation 21) Advantages of Integrated system i) Common set of books time saving. ii) Cost saving due to common person iii) No need of reconciliation. iv) Avoids delay v) Accounting become easy Requirements i) Proper combine accounting system ii) mngt. Sanction for the system iii) Proper recording of data. iv) Training to staff. v) Proper the end 22) General Ledger A/C i) It s a special A/C in non-integrated system ii) used to gives the 2 nd effect of financial items iii) it gives the net total of all the other item iv) it also called as general ledger adjustment A/C v) finally profit is transfer to this A/C. 23) Job costing and batch costing Job Costing Non Integrated and Integrated A/C JOB AND BATCH COSTING Process Costing The method to prepare the cost sheet The method to prepare cost sheet for for each job each process Use To decide the cost for completion for To decide selling price for each job each process Decision To continue the process or get it To accept the job or not done from outside Useful to the business Involved in a production containing Involved in small job small processes Example Fabrication, printing press, staff Coconut oil, steal, car, etc. building 1 st Floor, Gajanan Plaza, Opp. Kashiba Medical, Ashok Stambh, Nasik Page 5

6 24) Short note batch costingi) It s a method of costing where the cost sheet is prepared for specific batch. ii) Useful to the business producing in batches iii) The selling price of each batch is calculated iv) e.g. Pharmaceutical companies, readymade garments, TV spare parts. 25) EBQ i) It is the min. size of the batch to be once. ii) EBQ = 2DS C Where D = Annual Demand S = Set-up time per batch C = Carrying cost iii) It is the min. qty to be once to have the lowest total cost iv) It is also called as optimum batch qty. 26) Job costing and contract costing. Job Costing Contract Costing The method used for finding the cost and profit of the contract i.e. long term job. Use To find out profit / loss and its accounting treatment of the cost. Decision Whether to accept the contract or not, transfer of profit to P & L and reserves Useful to the business Involved in L.T. job like construction contract Accounting treatment of profit Some part is transfer to reserves as Directly transfer to P & L per stage of completion. Reconciliation of C.A. and F.A 27) Inclusion of capital intrest in cost sheet i) There is a conflict on this issue. ii) Some cost accountant reject to add the capital interest in cost sheet due to following reasons a) it is not corrected with production b) it is implicit (notional) cost c) it can not be calculated with accuracy iii) AS per some cost accounts it should be added as a) it is cost of factor of production like wages to labour, cost of mate, etc. b) it is connected with production because we can't produce anything unless capital is invested. c) It may give wrong decision, if it is ignored. d) It is time value of money invested by owner 1 st Floor, Gajanan Plaza, Opp. Kashiba Medical, Ashok Stambh, Nasik Page 6

7 28) Reconciliation is redundant due to computers i) Reconciliation is required if C.A. & F.A. are separately maintain ii) In computer age the readymade software s are available for reconciliation. iii) These software can locate the mistakes / diff n immediately, which can be rectified. iv) Thus, preparing the reconciliation statement is practically removed by computers. 29) Treatment in cost Accounting A) R & D exp. i) Research exp are treated as revenue exp. ii) Development exp is treated as capital exp if production is successful, but if it is failed treated as deferred revenue exp. B) Fringe benefit expense: i) These are perquisites given to employees ii) Benefits gives to the employee should be added in the respective O/H cost iii) It should not be treated as direct wages. C) Treatment of Bad Debts: i) This is the amount not recovered from debts. ii) Some authors suggest that it should be added in selling and distri. O/H. iii) As per the other authors it is not directly connected to production, thus should not be added in cost sheet 30) Reasons for different in profit as per F.A. & C.A. i) Valuation of stock ii) Pure financial item iii) O/H actual amt in F.A. and but absorb in C.A. 31) Need for reconciliation of C.A. and F.A. i) To avoid the confusion ii) To find out the reasons for diff n iii) To avoid the conflict iv) To take the necessary steps v) To confirm that both the system works property 32) Treatment of By product: JOINT PRODUCT AND BY PRODUCT If the by product is of Treatment 1) Small value a) S.P. distributed to costing P & L as misc, income b) S.P. may be reduced from total cotst 2) Small value but can be further It will share the joint cost and its process sales will be recorded as normal sales 3) Considerable value Same as above 33) Explain all 6 methods of joint product (Plese refer the our regular class notebook) 1 st Floor, Gajanan Plaza, Opp. Kashiba Medical, Ashok Stambh, Nasik Page 7

8 PROCESS COSTING 33) Abnormal gain: i) When the actual production is more that expected production, then it is called as abnormal gain ii) It is used to abscrab the normal loss and the remaining abnormal gain transfer to costing, P & L A/C, credit side 34) Normal loss (scrap) i) It s a normally expected loss in processing and it is recorded in the credit side of process A/C, ii) It s scrap sale price is also credited which means that it is the recovery of total cost. iii) Some authors reject the above treatment and states that it should be transfer to costing P & L A/C 35) Abnormal loss i) When actual output is less than expected ii) It s scrap sales price is reduced from total cost iii) Generally, these are bad quality F.G. thus can be sold in the market. iv) Net balance of abnormal loss transfer To costing P & L A/C. OPERATING COSTING 36) Operating costing i) Special method for service sector ii) Cost sheet is prepared for the specific service centre like p.bus, p.hotel, etc, iii) The unique units are used e.g. tons km for transportation passenger km for traveling iv) Useful to decide the charges to be collected v) Expenses are divided in 2 parts a) Operating exp b) Fixed exp 37) Operating cost and operation costing Operating Costing Operation Costing Special method for service sector Special method for producer having different processes Result Helps to find out charges to be collected Helps to find out the cost of each operation Useful to Transportation, traveling, hotels, Specifically manufacturing hospitals, etc. companies. 38) Short Note: More are the km, cheaper is the cost i) The cost sheet of vehicle is divided in 2 partsii) The operating cost is generally the variable cost thus, it will increase in proportion to km iii) The fixed cost is fixed in total, thus its allocation per km comes down iv) Thus, with more and more km. the cost pkm reduces 1 st Floor, Gajanan Plaza, Opp. Kashiba Medical, Ashok Stambh, Nasik Page 8

9 CONTRACT COSTING 39) Cost plus contract i) It s a contract where the contract amount is not fixed ii) Contract amount = total cost + predecided % iii) Thus, if contract exp. Are increase, then the contract price will increase iv) Advantages to contractor a) no fixed price, thus no chance of loss b) He is free to give the quality c) Free from the tention of increase in cost v) Advantages to customers a) He can make the changes as per his wish b) He is secured from the fear of extra pmt c) Contract price depends upon actual cost 40) Escalation clausei) Special agreement to increase the contract price if the mote prices or labour rates are increase. ii) Not applicable for increase in quantity of Material / lab. Hrs iii) Advantages to the contractor as he is free from burden of cost increase iv) Acceptable to the contractee as he will not suffer due to increase in quantity v) The contract price will be reduce prices comes down which is called as de-escalation 41) Rules for accounting for P & L for contract (notes) 42) Principle budget factor: i) It is something for which the cost is calculates ii) It is also called as key factors or cost centre. iii) The cost sheet is prepared for principle budget factor and it is used for decision making. UNIT COSTING 43) Short note on unit costing i) it s a method of to find out the cost for single unit ii) it is used specifically for unique product iii) e.g. special Taylor made like iv) every cost associated with the same unit is considered. v) it is useful for finding out the selling price of the product. STANDARD COSTING 44) What are the causes of labour cost variance: i) difference in labour sate. ii) Inefficiency of labour iii) Improper combination of labour group iv) Not getting the expected production from labour. 45) Responsibility of manager for variances i) in variance analysis the std. cost is compared with actual cost ii) in case of negative variance, the manager can be held responsible in normal case iii) but, situ. Drastically changes, then we can t compare the std. with actual and the manager should not be held repressible for those 1 st Floor, Gajanan Plaza, Opp. Kashiba Medical, Ashok Stambh, Nasik Page 9

10 MARGINAL COSTING 46) Distinguish Marginal Absorption The technique giving the decision on The technique giving the decision on the basis of marginal cost the basis of total cost Importance given to Only variable cost variable cost variable cost & fixed cost Valuation of closing stock considers variable cost + fixed cost Useful to As industry which as recovered A/C fixed cost is yet to be recovered already 47) CVP analysis i) It is the analysis of cost, volume and profit ii) In simple words, it makes analysis of impact of change in volume on profit and cost. iii) It is useful technique to decide the cost and different production levels. 48) Explain break even chart and its i) It is the chart shoring the profit BEP below BEP and above BEP ii) It helps to analyses the angle of incidence which is the angle between total cost and sales. iii) higher is this angle more will be the profit e.g. A ltd. selling price 100 variable cost 50, a/c thus BEP (units) will be f/c / conti = 1000 units. iv) lets draw break even chart. Profitability statement Units Total v/c Total f/c Total cost Profit (40000) (25000) Graph Total Sales BEP Profit Total Variable Cost Loss i Angle of Incidence Total Fixed Cost 1 st Floor, Gajanan Plaza, Opp. Kashiba Medical, Ashok Stambh, Nasik Page 10

11 BUDGETARY CONTROL 49) Short note on 0 (zero) base budget: i) It s a modern technique of budgetary control ii) Here the base of the budget is zeros. iii) It means that the old budgets are ignored and new budgets are prepared on the basis of fresh information collected. iv) It s advantage is that the dept. which was ignored in earlier budget shall be considered properly and amount shall be perfectly used. v) It s limitation is that it is time consuming as well as costly. 50) Advantages of budgetary control 1) Guideline 2) Useful tool for control 3) Profit can be predicted 4) Useful for decision making 5) Helps for comparison of actual and budgetary 6) Helps for rectifying past errors. OVERHEADS 51) Distribution of overheads among dept. i) Overheads are not directly connected with production thus, distribution of O/H is a challenging issue. ii) The overhead distri. Among dept. contains 3 steps. a) Allocation b) Apportionment c) Re-apportionment iii) Allocation means charging the overhead directly to the particular dept. iv) Apportionment means distributing the semaining O/H among all the dept. suitable basis e.g. building rent area. v) Reapportionment includes distri. Of service dept. O/H among production dept. on some pre-decided base. vi) After all three steps we get the O/H of particular dept. which is to be divided by appropriate base to get the O/H recovery rate. e.g. machine hrs for machine oriented dept. labors hrs for labour oriented dept. O/H Allocat n Apportionment Reapportionment Trial and Error step. Simultaneous Equat n Repeated Distribut n 1 st Floor, Gajanan Plaza, Opp. Kashiba Medical, Ashok Stambh, Nasik Page 11

12 52) Distinguish between: Variable cost Fixed cost The cost which change with level of The cost which is constant at all the production levels of production Nature per unit Fixed p.u. Not so important Variable p.u. Importance for decision making Not so important Graphical presentation 53) Overhead recovery rate, overhead absorption i) The cost sheet is prepared at the beginning of the year. ii) Thus, the O/H are predicted on the basis of some predetermine rates called overhead recovery rate iii) When all the dept having common rate, it is called as Blanket Rate system. iv) When different rates for different dept, it is called as Multiple Rate system which is more scientific v) The bases for rate can be machine hrs, labour hrs, labour cost, prime cost, etc. vi) Thus, we can predict the O/H by the above recovery rate which may be different from actual overheads. vii) If actual O/H are more than absorb O/H. it is called as under absorption viii) If actual are less it is over absorption. ix) Under absorption is risky and its accounting treatment is as follows. a) under absorption due to abnormal reason b) under absorption due to normal reason shared by unit sold, F.G. stock and W/P stock. 54) Bases for primary distribution Overhead Bases 1) Supplies - No. of purchase requisition 2) Repairs - Value of machine 3) Maintenance - Area 4) Executive salary - No. of workers 5) Rent - Area 6) Power and lights - HP and light points 7) Fire insurance - are / cost of building 8) Indirect labour - direct labour 55) Appropriate method depre, when the production units are fluctuating. i) The traditional method of depre. Like SLM, WDV are inappropriate incase of wide fluctuation in production. ii) In this case we should use production unit method iii) by this method depre. = (depreciable amt/total production unit) X units of C.Y. iv) it s advantage is that depre. Will not be charge when machine is idle and more depre. Is charge when machine is use more. 56) Idle capacity i) It is diffn between normal capacity (say 11 hrs) and actual capacity used (say hrs i.e hrs) ii) The idle capacity costs are fixed exp. Which must be paid like depre. Machine rent etc. iii) Thus idle capacity cost idle hrs X O/H rate phr, iv) The under absorbed O/H due to idle capacity is debited to costing P & L A/C if it is due to abnormal reason. v) Under recovered O/H. due to normal reasons will be added in factory O/Hs. 1 st Floor, Gajanan Plaza, Opp. Kashiba Medical, Ashok Stambh, Nasik Page 12

13 57) Codification of O/Hs. (i) O/H distri. Is a challenging task and codification system makes it easy (ii) It includes following methods Method Description 1) Straight Numbering - No. are given for each type of O/H. 2) No. Blocks - The series of no. is given for the main heading which includes all the sub O/H with different nos. 3) Combination of symbol & no. - Alphabet is assigned for main heading and no. for sub heading e.g. R1 Repair of building, R2 Repair of machine. 4) Field method - 9 digit no. is given for each O/H e.g. 10/120/01/05 means v/ idle time / waiting for mate/ lathe shop. 5) Mnemonic method - short alphabets are given for each O/H e.g. MIC means machi, idle time cost. (iii) The field method is most appropriate method and regularly used. (iv) Thus, the system helps to record O/H properly. 58) Stores O/H i) These are the O/H relating to storage of goods ii) Its examples are rent of warehouse, salary of store keeper etc. iii) It can be distri. Among dept. by following methods a) In the proportion of purchase requisition. b) In the proportion of material given to dept. c) By using the standard recovery rate. iv) The last method is the most appropriate method as 1 st 2 methods may result in injustice with depts. 59) Whether following items should be added in cost sheet? i) Interest on loan a) in favour it is cost of factor of production b) Against it is not directly connected with production ii) Bonus and gratuity a) In favour it is the sub-part of wages. b) Against it is not directly applicable to production like direct wages. iii) Depreciation a) In favour the machine is depreciated due to its use for production b) Against it is not directly connected as machine is depreciated even if it is not use. 60) Cost accounting treatment a) Packing exp Added in selling and distri. O/H. b) Fringe benefit added in respective O/H. c) Exp. Of removal of machines debited to costing P & L A/C or reduced from its selling price. d) Employee welfare cost costing P & L A/C e) Overtime cost normal added in O/H. abnormal costing P & L Dr. on the request of customer - added in the cost sheet of specific job f) Admin O/H added in C/S as admin O/H. g) Selling and distri. Normal recorded in cls. Abnormal costing P & L Dr. on the special demand added in the cost sheet of job h) Training cost regular added in cls. On the demand of cust. Specific job. i) Cost of small tool of small life (consumable) added in appropriate O/H. 61) Problems with controlling selling and distri. O/H. i) It is indirect expenses. ii) It depends upon competition and market position. iii) It also depends upon customer behaviour iv) It is very difficult to predict the cost. v) The benefit from this can t be directly found. 1 st Floor, Gajanan Plaza, Opp. Kashiba Medical, Ashok Stambh, Nasik Page 13

14 LABOUR 61) Job Evaluation (i) It is analysis of each job / process perferm by workers (ii) Deep analysis is made to decide its important. (iii) Job which is not so important can be eliminated, (iv) Some job can be done from outsiders. (v) Its help for cost reduction. 62) Merit rating (i) It is evaluation of each workers / group of workers. (ii) Here performance analysis each worker is done, decides its important. (iii) The worker is not performing shall be eliminates or shifted to another dept. (iv) Another worker can be appointed for job. (v) It is also cost redn tech. 63) direct lab and indirect lab Direct lab Cost paid to D. workers Direct Added in prime cost Generally variable Connection with production Indirect lab Cost paid to indirect workers Indirect Accounting treatement Nature Added in respective O/H Generally fixed 64) Time and motion study (i) It is an analysis of available time and the production steps taken by the workers. (ii) It helps to find out the wastage of time due to unproductive steps or sub-steps. (iii) As per this technique, the interconnected machines should be arranged as a common group to save the time e.g. computer table contains monitor, printer, key board, CPU speaker, etc at one place (iv) It ultimately save the time, cost and energy of workers. 65) Idle time (i) It is the cost paid for unproductive time of workers (ii) It means the co. pays the labour cost, but workers are not actually producing anything. (iii) It may be due to normal reasons like lunch time, tea time, dress changing time, regular training etc. (iv) Here, the idle time cost should be added in labour cost. (v) Sometimes it is due to abnormal reasons like strike, machine breakdown, etc. (vi) Here, the idle time cost is debited to costing P & L A/C 66) Overtime cost refer chapter overheads (i) Cost paid for extra hrs (ii) Normal reasons i.e. regular O/H cost added in cost sheet (iii) Abnormal O/T cost added in costing P & L A/C (iv) O/T due to customer demand added in cost of that product. 67) Labour turnover (i) The rate of incoming and outgoing workers (ii) Impact trend employees are lost, additional cost for new employees, chances of wastages by new employees. 1 st Floor, Gajanan Plaza, Opp. Kashiba Medical, Ashok Stambh, Nasik Page 14

15 (iii) Methods to measure L/T No. of workerreplace Avg. No. of workers No. of workerseperated Avg. No. of workers a) Replacement method = X100 b) Separation method = X100 c) Flax method 68) Cost associated with L/T A) Preventive Cost Cost associated with preventing the workers to go out. E.g. medical facilities etc. B) Rectification cost The cost of employing new workers, training cost. 69) Circumstances when time-rate system is applicable. (i) When quality of product is important. (ii) The production is not in wholesale qty. (iii) The time required for production is uncertain. (iv) We are manufacturing the unique product like new model of car. 70) Time keeping and time booking Time keeping Recording time in and out of each workers Time booking Recording the performance of workers between time in and time out. Result Gives the details of hours for which the worker was present in a company Gives the details of performance in each dept. by the worker. Helps to find out Absentee, overtime, late time of worker Productivity of worker during the day. Accounting for each dept. Required to analyses deptwise Not required performance of the worker working in diffn dept. 81) Cost reduction and cost control Cost reduction Cost control Steps to reduce the cost permanently Steps to control the cost within without affecting quality of product. standard limit. Relation with standard cost It challenges the std. cost Overall cost shall be reduced Impact It follows the std. cost Overall cost shall be control Efforts It is continuous activity of R & D to It requires the effort at the beginning reduce the cost of the year to set the standard cost Impact on cost variance It will be positive It is nil 1 st Floor, Gajanan Plaza, Opp. Kashiba Medical, Ashok Stambh, Nasik Page 15

16 UNIFORM COST AND INTER FIRM COMPARISON 82) Uniform costing (i) The system where all the companies in the same industry will follow same costing technique. (ii) Advantage. a) Result of 2 firms are comparable b) The team of firms can appoint qualified cost account c) The R & D of big companies is useful small companies. d) The unity helps to make bargaining with Govt. e) There can be healthy competition. f) The weaknesses of companies can be avoided b comparisons with others (iii) Limitations a) The management may not be ready to give the secret information. b) The big companies may not co-operate c) It may not be affordable to small companies d) Inaccurate a data by any 1 co. affect the theme. e) It is very difficult to find out common costing technique applicable to all. 83) Interfirm comparison (i) It is comparison of performance of two or more compnies. (ii) It is result of applying uniform costing technique. (iii) Advantages same like uniform costing (iv) Limitations- same like uniform costing (v) Basic requirements a) Common understanding of all b) Expert in to design the common system c) Sharing the data by all d) The common centre to collect the data, to analyses it, to evaluate it and to give proper suggestion to member companies. BASIC CONCEPTS 83)Difference between Cost Accounting & Financial Accounting 1) Day to day information: Available in CA only. 2) Job / process / product / department wise information: Available in CA only. 3) Information to government: Given by FA only. 4) Capacity details: Available in CA only. 5) Standards: Available in CA only. 6) Decision making: Both are useful but CA is more useful. 7) Decision about labour cost: Available in CA only. 8) Distribution of overheads: Available in CA only. 9) Best utilisation of materials: Possible by CA only. 10) Preparation of budgets: Available in CA only. 84):Cost centre Location, person, machinery, etc. for which cost is calculated e.g. for Bajaj, Two wheeler, Three wheeler segments etc. it many be production cost centre or service cost centre It may be personal / impersonal cost centre. 85) Cost units Something in terms of which the cost is expressed, e.g. per litre, per km, per meter, etc 86) Essential of C.A. system 1) Organizational structure 2) Selection of costing technique 3) Proper short-term plans for Material Lab, O/H 4) Treatment of wastages 5) Collection of cost data 6) Plans for budgets 1 st Floor, Gajanan Plaza, Opp. Kashiba Medical, Ashok Stambh, Nasik Page 16

17 7) Define the ultimate result 8) Proper study of nature of business 9) Consulting with staff and their training. 10) Proper reporting system. 11) Standardisation of forms. 12) Deciding the information flow 13) Proper reconciliation system. 14) Keeping the system simple. 87. Role of cost accountant 1) Cost information 2) Designing the frorms 3) Cost information flow 4) Cost reduction, ascertainment, control, companies and reporting. 5) Classification of cost allocation, apportionment, reapportionment, absorption, etc. 6) Decision making 7) Preparing cost reports. 8) Conclusions 9) Cost accounting dept. 88) Variable cost v/s direct cost Variable cost Directly changing in proportion to production e.g. material. Direct cost Directly connect with production All variable cost are d/c, but all d/c may not be variable cost 89) Estimated cost v/s standard cost Estimated cost General estimation of the cost, generally calculated without much efforts, standard cost properly calculated with the scientific cost records and the current situation. 90.Chargeable exp. (direct exp) Includes all the direct expenses and these are directly charge for the production. 91. Essentials of cost accounting system 11) Integration of C.A. and F.A. 12) Proper control on all the process 13) Proper recording of workers time and wages 14) Proper recording and treatment of O/H 92. Controllable cost and uncontrollable cost Controllable cost Yes V/C Direct Allocation Mngt. Control General Nature Direct / Indirect Distribution Uncontrollable cost No F/C Indirect Apportionment 93) Profit centre Segment of business expected to give the profit, each centre head is responsible for generating the profit. E.g. Tata s TATA Motors, Tata communication service, Tata indicom, Tata Photon 1 st Floor, Gajanan Plaza, Opp. Kashiba Medical, Ashok Stambh, Nasik Page 17

18 94) Four types of costing method 1. Job costing 2. Batch costing 3. Contract costing 4. Operating costing 5. Process costing 95) Product cost The cost sheet for each product separately, as per marginal costing only v.c As per absorption costing variable as well as fixed Purpose to find out product profit to decide selling price of product bargaining with govt 96) Cost driver It is something which incrses the overall cost of product, process, etc. e.g. distri. Cost no. of distri. Cost, customer calls etc. 97) Cost object = cost centre 98) Sunk cost The cost which is already paid, not directly connected with future decision, e.g survey cost paid to take the future decision. Not useful for decision making, treated a deferred revenue in F.A. 99) Objectives of cost accounting 1. Cost ascertainment 2. Cost control / reduction / comparison 3. Deciding s. price 4. Finding out profit 5. Future decisions 100) Explicit cost and implicit cost Explicit cost Yes Yes Yes Yes Actual amount Recording Useful for decision Can be calculated easily? Implicit cost No. No Yes No 101) Practical difficulties in implementation of CA system: Lack of 1) Management support 2) Staff support 3) Cost support 4) Trained staff Steps - 1) selling idea to mngt 2) Discussion with staff 3) Proper training 4) Involvement of all 5) Explaining the advantages 102) Conversion cost v/s opportunity cost: Conversion cost Actually cost paid to convert raw material includes all direct exp. Opportunity cost Implicit lost, cost of opportunity forgone, interest lost on capital investment 1 st Floor, Gajanan Plaza, Opp. Kashiba Medical, Ashok Stambh, Nasik Page 18

19 103) Types of costs: Cost Variability Base Connection Base Controllability Base Variable semi variable fixed direct indirect controllable uncontrollable 1 st Floor, Gajanan Plaza, Opp. Kashiba Medical, Ashok Stambh, Nasik Page 19